Fathom Consulting have run the numbers, using the Bank of England’s economic model.  And as the FT reports (and I complained, pre-Cleggmania), the whole NIC cuts debate is an irrelevance:

Danny Gabay, Fathom director, lambasted both Tories and Labour for arguing over the issue. “It’s not even rearranging deckchairs on the Titanic – £6bn is utterly irrelevant,” he said …  “[Labour] is scaremongering over an irrelevance and [the Tories] are claiming large benefits over an irrelevance,” he said.

The things the parties would like to shout about – like Save our Tax Credits! from Labour – don’t always resonate, or have much solid meaning (see ‘Big Society’, passim).   Yet there are huge decisions to be taken because of sheer fiscal necessity.  Nicholas Timmins, public policy guru at the FT, has a long analysis piece on the welfare state, all £413bn of it, with this extraordinary fact:

The size of the task is illustrated by the fact that even if it were practically possible, let alone politically, to axe overnight all Labour’s additional entitlements – the bus passes, baby bonds, education maintenance allowances, Sure Start centres and the like – the total saving would be less than £10bn a year.

For those thinking the answer is privatisation, there is this thought:

[Professor Glenerster] recently calculated the cost of replacing state education, health and pensions for a family with two teenagers, using private payment and insurance. The cost came out at more than half the income of an average family – “and that is assuming they are in good health. If they are not, the costs would be catastrophic,” he says. “Private insurance cannot pool risks over the whole population, so the costs are inevitably higher than the taxes the family pays at present.”

The costs of things like Winter Fuel payments are undebated in this election.  There are 13m over 60s.  £250 per year then equals £3bn a year.  Yet according to David Willetts* the people getting this £250 and for the next few years are uniquely privileged, and living off the worse-luck of the younger.  Those born in that era enjoyed defined benefits pensions; rising house prices, yet with mortgages wiped away by inflation; favourable demographic ratios.  And yet we transfer £3bn a year to them?

Absence of debate about the fiscally-crunchy issues is the nagging sub-theme for wonks talking about the election.  Instead of judging their plans, we are asked to reward parties for their ‘instincts’: look at the FT’s incredibly lukewarm endorsement of the Conservatives**:

This leaves the Conservatives. They are not a perfect fit, but their instincts are sound. Their fiscal plans, while vague, suggest they would do most to reduce the size of the state – cutting more and taxing less than their opponent

We are left watching a party rewarded by the most financially astute (and consistently liberal) newspaper in the land, for …. having plans that ‘suggest’ the right action, and ‘sound instincts’.  Despite making a monumental fuss about something that might deliver 0.03% extra growth, they get credit for ferociously difficult actions that they have somehow not spelled out in any detail. Not a great day for the idea of  media scrutiny.

*possibly my favourite Tory

**[Yet again, a newspaper shows concern at what the FT calls “an uneasy mix of sanctimony and populism” in LibDem economic policy.  This is worth noting.]

Advertisements

6 thoughts on “Tory NI cut to boost growth …. by 0.03%

  1. Sanctimony and populism are absolutely fine if they are based on sound reasoning.

    And when I read the sentence about the Tories that they would “do most to reduce the size of the state”, this again reminds me of the Tories ideological predisposition to shrinking the size of the state. Is the FT really saying that even if we didn’t have this huge deficit, the state should shrink anyway? Sure, Labour has grown the size of the state, but it seems to me that has more to do with how much of a shambles funding on things like the NHS were pre-1997.

    1. What the FT are gettting at is that as an opposition party which at a national level uses rhetoric as radical as Labour in opposition – on taxation for the wealthy, etc. – the Lib Dems are being rather indecent. I imagine they’d prefer it if senior liberal politicians merely repeated the old lies about trickle-down and told people to worry about other things…

  2. “[Professor Glenerster] recently calculated the cost of replacing state education, health and pensions for a family with two teenagers, using private payment and insurance. The cost came out at more than half the income of an average family – “and that is assuming they are in good health. If they are not, the costs would be catastrophic,””

    Quite. Therefore we must include the value of State provision of such things in our calculations of both income and wealth inequality.

    Making all of this wibble about “Victorian levels” of inequality entirely nonsense. We’ve just upgraded the income of the average family by 50% (median household income is what, high 20ks?) and we’ve also just said that they’ve a right to this income stream meaning that the welfare state is an asset worth, what, £400 k or more?

    1. I quite agree, and all things should be taken into account.

      Table 14 of this
      http://www.statistics.gov.uk/downloads/theme_social/Taxes-Benefits-2007-2008/Taxes_benefits_0708.pdf

      shows that the bottom decile have a post tax income of #4600, compared to the 5th decile of 17800- about a quarter. But when you throw in benefits in kind, you get 12,500 versus 26000 or so – about half.

      The bottom to top ratio goes from 13:1 to 5:1 as well.

      Of course, some of the left might argue that the top deciles receive some massive support themselves in terms of the stable set of property rights etc that enable them to be so rich. Though what is the counterfactual? Feudalism?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s